NQ magazine, April 2017

NQ magazine April 2017

P23

THE VOICE OF ALL NQs Contact us

email: graham@pqaccountant.com twitter: @pqmagazine facebook: pqmagazine.com call: 020 7216 6444

VALUE ADDED TAX HMRC sets out treatment of colouring books – for adults

ALL THE NEWS YOU NEED and a whole lot more Pages 4 and 7

P14

NQ OF THE YEAR TECHNOLOGY Why the FD should own the Internet of Things Page 16

MANAGING RISK Firms should take a strategic perspective to risk, says new CIMA report Page 12

MEET HARRY PAMPIGLIONE, WHO WAS RECENTLY CROWNED NQ OF THE YEAR AT THE PQ AWARDS P8

YOUR CAREER Lifting the lid on the world of shared services

MONEY LAUNDERING: AN ETHICAL DILEMMA How naivety on the part of the accountant can have grave consequences P10

working better together FP&A Manager

Finance Manager

FMCG, Surrey

Retail, Surrey

£55,000 + bonus + car allowance + benefits • Responsible for reporting and communicating the business performance.

• Collating and summarising reports provided by the business into both a monthly flash pack and the management reporting pack.

• Responsible for additional reporting to feed into business review meetings.

• Own and manage annual budget process and be responsible for agreeing the timetable to deliver the output of both internal management and regional reporting requirements.

• Give the financial input for a three-year strategic planning cycle.

£50,000 + benefits • Responsible for the day to day running of the finance department; team of three.

• Maintain balance sheet reconciliations, prepayments & accruals.

• Generating key decision making reports for presentation to the Board.

• Providing cost control, financial advice and decision support.

• Production of monthly management accounts.

• Annual budgets & forecasts.

• Managing debtors and creditors effectively.

• Preparation of statutory and regulatory returns.

redefining financial recruitment T +44 (0)20 8408 9999 E info@walkerdendle.co.uk

www.walkerdendle.co.uk

COMMENT

NQ magazine 27

NUMBER CRUNCHING

EDITOR’S COMMENTS

Change is all around us As NQ magazine went to press the UK was triggering Article 50 of the Lisbon Treaty and leaving the EU really did come a big step closer. The ACCA’s John Williams said that the association firmly believes that there is no reason to anticipate any change to the global recognition and portability of the ACCA qualification. He went on: “I would like to reassure our members, students and staff in the UK, Europe and around the world that it continues to be ‘business as usual’ for ACCA.” Funnily enough, the ACCA seems more prepared for the exit from the EU than the UK government! Williams explained its policy and technical experts have been planning for this phase since last year’s referendum result and ACCA is set to respond to any key developments that are likely to impact on its members, or the wider profession.

Meanwhile, all CIMA members (and PQs) have just received a letter telling them about the repositioning of the brand. You really can see the alignment with CIMA and the American Institute of CPAs in what has been produced. I think we now know who the ‘senior’ partner is in this relationship! I must admit I am getting a bit confused. We have CIMA, CGMA, CPA, the AICPA and now we have the Association of International Certified Professional Accountants, or as they like to be known the Association. Please someone sort this mess out!

Over at the ICAEW came the announcement of new further education programmes for CFOs. They have been commissioned by the Education and Training Foundation (ETF) for a programme that will deliver a step change in the ability of CFOs in the sector to partner with their CEO to drive strategy forward.

Oh, and don’t forget to read all about our NQ of the Year - see page 8.

Graham Hambly, Editor (graham@pqaccountant.com)

The current number of anti-money laundering supervisory bodies P4

20%

Percentage of young accountants who regularly see unethical behaviour at work P7

5

key areas of focus in CIMA’s new report on managing risk P12

200 billion

number of objects that will be connected by the Internet of Things by 2022 P16

25

years the Corporate Governance Code has been in operation in the UK P18

£2.8 million fine imposed on two businesses found to be operating a cartel P22

NEWS

New AML watchdog

A new watchdog has been set up to help close any loopholes used by criminals to launder their dirty money in the UK. The Office for Professional Body Anti-Money Laundering Supervision (phew!), or OPBAS to you and me, will sit within the Financial Conduct Authority (FCA) and should be up and running by the start of 2018.

The government wants OPBAS to tackle potential weaknesses in the supervisory system that it feels criminals and terrorists may be trying to exploit.

On top of the FCA, HMRC, the Gambling Commission and the Faculty Office of the Archbishop of Canterbury there are another 23 anti-money laundering supervisory bodies, mostly accountancy and legal trade bodies.

The plan is for OPBAS to also complement the updated Money Laundering Regulations, which seek to bring the UK’s Anti-Money Laundering (AML) and Counter Financing for Terrorism (CFT) regime into line with the latest international standards.

HM Treasury said these regulations set out robust new standards of supervision, including the requirement of all supervisors to draw on common factors when developing their risk assessments and maintain records of their investigations and decisions on disciplinary action.

It is being proposed that the new watchdog will have powers to fine supervisors if money laundering regulations are breached. Another of its tasks will be to simplify the antimoney laundering rules that apply to different industries.

New Treasury tool just for you In today’s volatile and uncertain business environment treasury practices have become increasingly more complex. As the guardians of their organisation’s assets, management accountants need to be aware of the new challenges and opportunities presented by the evolving nature of treasury.

To this end, a newly published Chartered Global Management Accountants (CGMA) resource, Treasury and Cash Management Essentials, has been created to provide a practical guide to help you add value to the business.

• Find out more at http://www.cgma.org/resources/tools/ treasury-and-cash-management.html

A state of disrepair The UK housing crisis has become so bad that even wealthy young professionals are being forced to rent in squalid conditions, claims new research from Citizens Advice.

Over half of renters who earn more than £50,000 a year have experienced damp or mould during their current tenancy, and one in five have suffered an animal infestation, according to the research.

Despite better-than-average salaries young people in the highest 25% of earners are still struggling to buy their first home because of runaway house prices and high rental cost.

The Citizens Advice survey found the average yearly rent was £7,600, which rises to an eye-watering £15,000 in London.

The charity is also worried that private renters are severely under protected, and “have more rights buying a toaster than renting a home”. High prices also have no bearing on quality and tenants are left paying too much for a product that is not fit for purpose.

FRC wants right to sanction all directors The UK’s biggest public companies have been put on notice – the Financial Reporting Council (FRC) wants to be able to take disciplinary action against all individuals for breaching financial reporting rules.

Currently, the watchdog can only sanction accountants, auditors and actuaries, but it is asking the Government for the ability to sanction all listed company directors.

The FRC has announced formal plans for a fundamental review of the UK Corporate Governance Code. This will take account of the work done by the FRC on corporate culture and succession planning.

It said the review will build on the code’s globally recognised strengths developed over the past 25 years, while considering the appropriate balance between its principles and provisions and the growing demands on the corporate governance framework.

Responding to the Government’s Green paper on corporate governance reform, the FRC highlighted the importance of helping boards take better account of stakeholder views, linking executive pay to performance. But the request to extend its enforcement powers to ensure that disciplinary action can be taken against all directors where there have been financial reporting breaches will have raised a few eyebrow in boardrooms around the UK. ● See pages 10 & 11 for a round up of the latest

FRC news 4

NQ Magazine April 2017

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NEWS

Accountants behaving badly?

How often do you ‘observe’ unethical behaviour at work?

Research by Accountancy Europe (formerly known as the Federation of European Accountants) found that one in five young professional accountants see unethical behaviour either ‘frequently’ or ‘every day’. Another 33% encounter unethical behaviour sometimes.

The most frequent unethical behaviour observed by young professions was conflict of interest (44%). This is closely followed by people not following rules, regulations and procedures (42%). More worrying, perhaps, was the manipulation of information and undue pressure, which both came in as the third most-seen bad trait (at 27% each).

Accountancy Europe said that the comments reveal that some respondents deplore the focus of their firm company on profits or on compliance with the law instead of on ethical behaviour. Several respondents also claimed that time pressure was preventing more ethical behaviour. ● The Federation of European Accountants (FEE)

has changed its name to Accountancy Europe. Visit the new website www.accountancyeurope.eu

Your rightbrain attributes will help get you to the top The role of the traditional CFO is blurring, according to an EY global survey of finance leaders. Aspiring CFOs will need to develop leadership and team-building skills, including strong relationships with the CEO and board, if they are to transition to a CFO role in the next five years.

Finance leaders will increasingly be characterised by more ‘right-brain’ attributes – such as empathy, innovation and imagination. These will help them inspire and generate loyalty, according to the study.

Communication styles will also need to change and become more adaptive. Digital channels and formats – from tweets to blogs and beyond – will be important elements of the CFO’s communication toolkit to reach both internal and external stakeholders.

Measuring performance against purpose will increasingly become part of the CFO role, as organisations look to demonstrate to internal and external stakeholders the impact of purpose-led firms.

NQ Magazine April 2017

Fears of being barred from EU markets UK accountants and lawyers could be effectively barred from some European markets if the government doesn’t strike a deal with the EU, a cross-party House of Lords report has warned.

The latest House of Lords Brexit report focused on trade in non-financial services and concludes that a comprehensive Free Trade Agreement (FTA) with the EU is vital.

A ‘no deal’ scenario, or a UK-EU trade deal that gave no special consideration to UK non-financial services, would risk serious harm to sectors such as professional business, digital, broadcasting, aviation and travel services.

The report says the government has underestimated the reliance of the services sector on the free movement of people.

It concluded that the FTA should include provisions surrounding mutual recognition of professional qualifications and regulatory structures The Chair of the EU Internal Market sub-committee, Lord Whitty, said: “The UK is the second-largest exporter of services in the world and the EU receives 39% of the UK’s non-financial service exports.”

The limited knowledge of limited company directors Shocking levels of misinformation, a lack of understanding of key financial facts and the precarious business situation of many UK SME limited companies have all been unveiled in a new survey by www.CompanyHelp.co.uk.

The results show a whopping 60% of company directors do not fully understand how a director’s loan account functions. Over one in four (26%) incorrectly said a limited company protects directors from all debt liability, and one in three incorrectly said if they own a company the money in it is theirs!

CompanyHelp’s Andy Clay felt a lot of directors still do not understand that a limited company is a separate living, breathing legal entity. However, they often have a ‘sole trader attitude’ towards taking money from companies thinking it is their own cash, and this is what puts a lot of directors into a position of owing a failed company money and facing not just company liquidation but also personal bankruptcy.

7

PQ AWARDS

There’s something about Harry…

We asked our newly crowned NQ of the year Harry Pampiglione about his career to date and what makes him tick Why accountancy and ICAEW? and legal documents to identify pricing adjustments or risks to help a buyer or a seller get a better deal.

To get a technical grounding in finance and business was a top priority after finishing university. Accountancy and the ACA offered that. The ICAEW has a great track record of developing accountants to a very high standard. The famous ‘25% of FTSE100 bosses are ACAs’ claim was something I heard when applying for graduate jobs, so it really ticked a lot of boxes.

Where do you see yourself in five years’ time?

How did you find the exams? Any tips on studying?

What has it been like being our NQ of the Year?

Were you surprised to be the winner?

Exams were hard work! For the ACA, it’s important to approach each set of exams (Certificate, Professional and Advanced) appropriately. You can’t just learn by rote, as you would for your Certificate exams, for your professional ones; they are testing different things. The overall key to passing is to do everything that your tutors tell you in college, their methods are tried and tested. If you do everything they say, when they tell you, you’ll probably pass.

Yes, extremely surprised. The shortlist was very competitive, so to walk away with the prize was a huge honour.

What is the first thing you did when you passed your last exam?

Went to Sushi Samba with a colleague (who also passed) for a beer!

What is the best thing about being qualified?

When you’re training there’s a fairly set structure: you have exactly three years of entry level work, sprinkled with exams, college and progression assessments. After you have finished, there are a lot more paths that you can take and it gives you the opportunity to find your own way. To me, that’s exciting.

Tell us a bit more about your role at PwC? I work in the SPA (Sales & Purchase Agreement) Team within Transaction Services, a department that offers professional services in mergers and acquisitions (M&A) deals. Our team helps negotiate the accounting issues in M&A deals. More specifically, we review balance sheets, due diligence reports 8

I joined the SPA Team six months ago, so at the moment, I can’t see myself not being at PwC. The team and firm are great and it’s an exciting time to be in the M&A market.

What’s the best piece of advice you have ever had?

My drum teacher, when I was 10 years old, told me that there is a fundamentally different mind-set between ‘practising’ and ‘performing’. Thinking about this has really helped with things like exams and interviews throughout my life.

NQ

UP CLOSE AND PERSONAL ● Job title: Senior Associate ● First job: Pot washer – Southdeep Cafe ● What are you reading? Go Figure – Tom Standage ● Last CD bought/downloaded?

Anderson Paak – Malibu ● Favourite TV show: The Thick of It ● How do you chill out? Cooking and watching sport ● Claim to fame: PQ magazine’s NQ of the Year NQ Magazine April 2017

PQ AWARDS

AN AWARDS NIGHT TO REMEMBER…

London’s Café de Paris has never seen anything like it, as hundreds of qualified and part qualified accountants rocked at the 2017 PQ awards.

The guestlist read like a ‘who’s who’ of the accountancy profession’s movers and shakers.

Just five newly qualified’s had been shortlisted for the prestigious NQ of the Year award. There were: Archana Bharathan, CSC Technologies, Singapore; Jessica Bernardez, Cancer Reaserch UK; Tom Burns, JoJo Manan Bebe; Harry Pampiglione, PwC; and Dani Williams, McAlister & Co, Swansea. The winner, as you can see, was one surprised Harry Pampiglione!

He truly is a man who puts things back. Not only has he been a successful Chartered Accountants Student Society of London chair, he has also helped lead a team of young professionals in developing a digital marketing strategy for a global human right charity, Reprieve. And, as part of his pro bono work for another leading global human rights charity, he helped trace the proceeds from diamond mining, despite the secretive agreements between governments and corporations. Pampiglione really is fighting the fight to make accountancy interesting.

Among the other winners on the night were Butlin’s, who took home the Accountancy Team of the Year. The Butlin’s Finance Team really is responsible for safe-guarding a ‘national treasure’ first dreamt up by Sir Billy Butlin 80 years ago. The team operates over three sites and after winning the prize they took their wonderful PQ trophy on a national tour. We have the pictures to prove it!

Another winner on the night was Kaplan and PwC’s gamification pilot for the ACA training course. This won the Innovation in Accountancy award and this shows that the experience of future qualifieds is certainly going to be very different from that of today’s NQs.

ain....

Harry ag

NQ Magazine April 2017

Butlin’s on tour

C Kaplan & PW

9

MONEY LAUNDERING

Know your obligations In the first in a new series of case studies on money laundering we examine how naivety can have grave consequences for the accountant

10

NQ Magazine April 2017

W

hile carrying out work for a convicted criminal, accountant ‘S’ allowed £50,000 to pass through his firm’s client money account. Initially, he did not realise the cash had come from a criminal source, but he continued to work for the client even after he became sufficiently concerned to file a suspicious activity report (SAR) with the National Crime Agency (NCA). The court accepted that he had been a naive victim of a sophisticated criminal.

Points to review What money laundering offences might have been committed by this accountant? Part seven of the Proceeds of Crime Act 2002 (POCA) includes the following money laundering offences: • S ection 327 – concealing, etc: Concealing, converting, transferring or disguising criminal property, or removing it from the UK. • S ection 328 – entering into an arrangement: Entering into an arrangement, or becoming involved in one, which you know or suspect facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.

MONEY LAUNDERING • Section 330 – failure to disclose (regulated sector): Knowing or suspecting (or having reasonable grounds for either) on the basis of information acquired in the course of regulated business that someone is engaged in money laundering and yet failing to disclose those facts as soon as possible.

What are the penalties for these offences?

•O ffences under s.327 and s.328 (as well as s.329): Summary conviction – a maximum of six months’ imprisonment and/or a fine not exceeding the statutory maximum.

Conviction on indictment – a maximum of 14 years’ imprisonment and/or a fine.

• Offences under s.330 (as well as s.331 and s.332): Summary conviction – a maximum of six months’ imprisonment and/or a fine not exceeding the statutory maximum.

Conviction on indictment – a maximum of five years’ imprisonment and/or a fine.

How might he have reduced the risks or defused them altogether?

Perfectly straightforward examples of good practice could easily have protected him from much of what he did wrong.

• B etter ‘know-your-client’ procedures might have identified the criminal connection earlier.

• Continuing due diligence procedures – particularly where unusual transactions fall outside the normal run of business – are an essential part of anti-money laundering compliance.

• The firm’s professional body most likely has strict regulations governing the operation of a client money account. In any case the firm should have had its own strict control procedures including scrutiny of the purposes to which the account is being put.

• Wilful blindness, fear and simple ignorance of the Money Laundering Regulations (including the duty to report and seek consent for disclosures) are all suggested by this accountant’s decision to continue working after suspicions arose. Adequate training might at least have remedied his AML ignorance.

What should he have done about his suspicions?

He could simply have made the commercial decision to end the relationship before the transaction was processed. As a professional he has every right to choose for whom he will work as well as to resign without explanation (as long as he takes care not to reveal his suspicions – this would constitute tipping-off in the eyes of the law).

Once suspicions had arisen his decision to make a SAR was the right one. But in circumstances like this, where there is a risk that any unexplained or unexpected actions might inadvertently alert the suspect to your suspicions, it is advisable first to seek legal advice. When making the SAR he should also have sought the NCA’s permission to proceed (a so-called consent request) so that law enforcement could follow the money, gather valuable intelligence and bring the criminal to justice more quickly. In transferring what turned out to be criminal property the accountant had himself committed an offence; a successful consent request would have protected NQ him from prosecution under s.327 of POCA. ● Thanks to the CCAB for this article NQ Magazine April 2017

11

CORPORATE VIABILITY

Surviving in

an uncertain world Firms should take a strategic perspective of the risks that they face, according to a new CIMA report. Charles Tilley explains all

I

n September 2014, the Financial Reporting Council (FRC) announced changes to the UK Corporate Governance Code and introduced measures designed to help ensure corporate viability. Included in these revisions was a requirement for companies to publish a ‘Viability Statement’ to provide a board’s assessment of the company’s long-term prospects. This statement was designed to encourage risk to be considered as integral to the business, rather than as a separate function, and to take a strategic perspective of the risks that the firm faces.

To help board members and senior executives understand how they can meet these requirements, a new CGMA report aims to share practical thinking on the key issues. Ensuring Corporate Viability in an Uncertain World: Framing the Board Conversation on Risk has been produced jointly with the Chairmen’s Forum, and published in association with Airmic, and Alvarez & Marsal. It includes a framework that integrates different parts of companies with each other and with their ecosystems. By doing so, it enables the board to view the business through a series of lenses such as values, behaviours and risk appetite.

The framework, developed by CIMA and the American 12

Institute of CPAs (AICPA), offers five particular areas to focus on for an integrated approach: long-term success; creating value through the business model; leadership; stewardship and building trust; and risk management. Taken together these areas position boards in the best possible place to secure their viability in uncertain times.

The first area of focus should be on achieving success over time, creating value for customers, stakeholders, society and the environment. The purpose of integrated risk management is to ultimately try to make sure that this happens.

The second is on ensuring that companies define, create and capture value in a consistent and coherent manner that connects with their ecosystems and operating environment. Every company will have a slightly different ecosystem, comprised of interdependent networks and relationships that interact with each other in different ways.

This volatile environment creates both risk and opportunity for a business, but those firms that identify and exploit the opportunities while mitigating the risks are able to generate and deliver value to their stakeholders.

Thirdly, this changing agenda for boards requires risk NQ Magazine April 2017

CORPORATE VIABILITY

leadership, facilitating a qualitatively different type of board discussion. It asks boards to focus on defining and articulating risk appetite, tolerance and the capacity of the organisation to absorb the potential financial impact posed by risks. It requires that leaders see risk holistically, analysing both risk and opportunity now and into the future. Finally, it needs them to be assured that they have an embedded management system to identify and manage risk.

This type of leadership is vital for the viability of the organisation in the short, medium and long term.

The fourth area of focus needs to be on stewardship and building trust. Actively managing relationships and resources so that financial and nonfinancial assets, reputation and value of the organisation are protected means ultimately that short-term commercial interests can be balanced against long-term value creation. This fosters trust – and without trust organisations are more likely to incur reputational damage, erosion of customer loyalty and unwillingness from stakeholders to invest.

Finally, an integrated systemic approach to risk management with a focus on behaviour and culture is essential for resilience, and therefore for the viability of any organisation.

Traditional risk management techniques alone will not create a culture of resilience, so it is up to boards to assure that this new style of integrated system is in place.

In our world of constant, unpredictable and accelerating change, where organisations find themselves having to work more closely with others than ever before to achieve their goals, risk identification and management has never been more important.

The changes introduced by the FRC should not be seen as a compliance burden, but rather as an opportunity. Businesses that seize the chance to implement an integrated approach to risk will benefit from a far stronger ability to face the changes ahead and not just survive but prosper. NQ

â—? Charles Tilley, Executive Chairman, CGMA Research Foundation

NQ Magazine April 2017

13

YOUR CAREER

14

NQ Magazine April 2017

YOUR CAREER

Pauline Schu lifts the lid on the world of shared services careers, sharing the findings of a recent and extensive ACCA survey

S

hared services models have provided organisations with the opportunity to consolidate finance operations and eliminate duplication. They have proved to be an effective way of keeping costs down and improving efficiency, and companies are now more and more moving beyond finance into a more encompassing global business services (GBS) model that includes areas such as human resources, procurement, real estate, sales and marketing and IT. The need to align the business strategy and financial/ administrative processes, combined with a desire to reduce headcount through process improvement initiatives, will continue as strong motivators for shared services centres.

Against this backdrop, what can finance professionals expect in relation to leadership roles within the function?

To address questions such as how leaders regard the roles they’re in, and their career prospects, ACCA spoke to over 260 shared service leaders to get their views about what attracts them to a finance role in shared services or a more encompassing (GBS) role.

ACCA’s findings indicate that many of the commonlyheld beliefs about shared services careers are quickly being dispelled. Shared services leaders increasingly see a career in shared services as a long-term option, as a development opportunity and a gateway to other business careers.

Respondents have highlighted six key observations about shared services. These offer strong clues about what the road ahead will look like.

For many, a move to shared services is an opportunity, rather than a mandatory rotation or a requirement, before moving on to a more desirable retained finance role. More than half of survey respondents see potential for a long-term career as the function matures gains scope and becomes a critical component of best-practice service delivery.

The commitment to a shared services career pathway might be due to the growing maturity of the model and the increasing influence of shared services and GBS. Our findings confirm that finance leaders are electing to pursue shared services careers, are finding their roles challenging and engaging. They are not necessarily looking for a path out.

When discussing specific skills required to succeed as a leader, respondents for the most part acknowledge that command of the subject matter is critical to shared services NQ Magazine April 2017

leadership and that finance mastery alone is insufficient.

Broader business and particularly soft skills such as influencing, communicating, change management and a keen sense of the customer are of paramount importance.

Both our survey data and the opinions we’ve gathered suggest that shared services and their leaders are slowly growing in stature within their organisations. They are getting closer to the top table as shared services continue to be seen as a strategic imperative and a real creator of business value.

The biggest concern raised by our respondents is the belief that their retained team colleagues and the business do not always understand the concept or the value of their function, nor do they appreciate the viable pool of talent shared services offer.

Despite this, the shared services role is regarded as one of great potential with regards to innovation. The application of technology, namely automation, is the natural purview of shared services operations charged with continually improving processes and the creation of efficiencies.

As the finance operating model matures, finance leaders are increasingly viewing a career in shared services as a long-term career and development opportunity. Our research reveals that it is increasingly being seen as an innovation lab as the pressure to perform drives efforts to build capability and implement more innovative technologies.

Taking up a role in shares services should no longer be viewed as a career end-game but an opportunity to broaden the capabilities and soft skills increasingly sought by business.

The report entitled: Finance Shared Services Career – Opportunity of End Game? is a must read for anyone NQ considering a career within shared services.

● Pauline Schu, Professional Insights Manager, ACCA 15

TECHNOLOGY

Why the FD should own the Internet of Things The Internet of Things is set to be a game-changer for business, says Donna Butchart, so you need to have a Board-level strategy do exploit the opportunities this creates

T

here is a huge amount written about the Internet of Things (IoT); vast tomes of printed and digital articles have been generated about its ability to revolutionise the way we interact with everyday objects.

When we consider how much the internet and connectivity has transformed our lives over the past three decades it is no surprise that its successor, the IoT, is set to provide a similar reformation.

Although the IoT is still in its infancy, analysts are forecasting that the number of objects interconnected will be over 200 billion within five years. Of this, 14% of objects will be autonomous connected things, meaning the pace of change and scale of transformation is unquestionable.

Traditional ways of interaction with previously inanimate objects will become a thing of the past. This has an implication for the Finance Director, as spend on IoT related technology and services is set to grow to over $8 trillion as companies identify new ways of interaction.

But many still grapple with how the IoT differs from the internet. In essence, the IoT is the inter-networking of physical objects that have their own unique identifier, creating a network connectivity that allows them to collect and exchange data. At a basic level this interaction between physical objects and IT systems allows improved efficiencies and accuracies to provide financial benefits. At a more advanced level it transcends into a cyber-physical system such as smart grids, smart homes and intelligent transportation (for example remote security systems and automated cars).

Such an opportunity will see many organisations rethinking traditional business models, which raises the question: should the FD own the IoT strategy? It could be said that the IoT is going to play such a critical role in company evolution that it should not be left to the IT department to design and rollout an IoT strategy.

The key reason for this is that while the Internet of 16

Things creates an effective infrastructure that links uniquely identified objects to let them collect and share data, the real value lies in the data collected and shared (rather than the infrastructure to collect); this is known as the Internet of Things Analytics (IoTA).

For this reason the FD needs to provide Board level ownership of the IoT strategy, so that the whole organisation both buys into and receives the benefit of the gathered data, allowing automation of business processes and informed business decisions.

Energy suppliers are using IoTA for predictive maintenance, centralised control systems, remote asset management and realtime safety inspections.

NQ Magazine April 2017

TECHNOLOGY

Those FDs who recognise the value of an effective IoT strategy realise it is a far cry from the world of traditional web analytics. An IoT strategy is not about measuring static internet devices to see trends or to try to forecast behaviours. It is about creating scenarios where the business has intelligent transparent input and output data from their business assets on which business decisions can then be made. It is about converting the 90% of unanalysed current data generated by mobile devices and connected appliances to capture value for the organisation.

As the IoT continues to gather momentum the Board needs to start considering how to adapt to this new environment; it will end up changing the way many companies do business. The degrees and timings will vary depending on the level of interconnections, appetite for competitive edge, budget to invest and state of existing IT infrastructure and systems. However the Board need to be developing an IoT strategy that reflects their business focus over the next five to 10 years.

For the FD to own a robust IoT strategy there are seven key questions that need to be considered: • Have you already created an IoT strategy? Is it owned at the Board level and does it encompass the data collection and analytics elements? Are all the different business teams extracting value, where possible, from the data?

• Are your products connected devices? Is it possible/ feasible to move from static objects to uniquely identified objects that can collect and gather valuable business data?

• Are your company assets interconnected? Can you create an infrastructure within which different teams can access NQ Magazine April 2017

valuable information? Could you be using your data more effectively?

• Are you already using business analytics within the business? Is there a strategy to develop it to encompass the IoTA? Do your teams use data-led decision making within their day-to-day roles?

• Is the IT department a suitable sponsor for the IoT strategy or does it need Board level buy in to ensure the full benefits are identified and realised?

• Would IoT give your organisation a competitive advantage by increased automation, work efficiencies or more informed decision making?

• Are your competitors already adopting an IoT strategy or are you able to use IoT to create a real differential within the market?

Already we are seeing companies across a range of sectors effectively using IoT technology. Within the rail industry it is being used to support remote asset monitoring with a view to helping organisations improve operations and for rail repair sensing, helping central teams to identify and plan repairs remotely. Energy suppliers are using IoTA for predictive maintenance, centralised control systems, remote asset management and real-time safety inspections, while healthcare companies are using the data they collect to monitor and tracking outbreaks of diseases.

Whatever your current business model, the Internet of Things is set to revolutionise the current market NQ place. Make sure your IoT strategy has Board-level ownership. ● Donna Butchart, MD, Project (EU) Ltd 17

REPORTING STANDARDS

IFRS round-up We take a look at what’s happening in the world of international standards Reforming corporate governance The interests of stakeholders, executive remuneration, the accountability of large private companies and effective enforcement are key themes in the FRC’s response to the Government’s green paper on corporate governance reforms.

The FRC says that UK corporate governance framework is respected worldwide and any changes need to build on its current strengths, including the unitary board and the ‘comply or explain’ approach. Demands on the framework are growing and the FRC believes more needs to be done to win back public trust.

The FRC proposes reform in four areas: • The interests of major stakeholders The Companies Act places a duty on directors of all companies to promote the success of the company, and in so doing have regard to a range of other factors, such as long-term consequences, the environment, employees, suppliers and customers. This duty must be reinvigorated. Companies should be required to report more effectively on how they have discharged it.

• Executive remuneration The role and remit of the remuneration committee should be extended to cover pay policies throughout the organisation. Remuneration policy and payments should have a much clearer link to delivery of

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strategy, focusing strategy and outcomes that deliver longterm company performance.

• Large private companies They must be more accountable to their stakeholders given their significance to the public interest and the privilege and benefits of limited liability status. The FRC supports the introduction of corporate governance principles for such companies and associated reporting. The FRC is well placed to develop this.

• Effective enforcement of the law The regulatory framework is fragmented, with gaps in enforcement action. The FRC also proposes extending its powers to investigate and prosecute all directors for financial reporting breaches and associated issues of integrity, rather than only accountants and actuaries.

The FRC recently announced plans for a fundamental review of the UK Corporate Governance Code. This will take account of work done by the FRC and others on corporate culture and succession planning, and the issues raised in the Government’s Green Paper and the BEIS Select Committee inquiry. The review will build on the Code’s globally recognised strengths developed over the past 25 years while considering the appropriate balance between its principles and provisions and the growing demands on the corporate governance framework.

NQ

NQ Magazine April 2017

REPORTING STANDARDS Improving audit confidence

Audit and data analytics

Re-tendering and rotation of auditors, as required by law, helps improve confidence in audit for investors and the audit committees whose job it is to appoint them, says the FRC. It stressed that confidence in audit derives from independent audit committees appointing an auditor that is best able to deliver an independent, high-quality audit.

The selection can be time consuming, so the FRC recommends involving the whole of the audit committee, discussing with investors which audit firms will be invited to tender, and engaging with firms before the process starts to ensure the right teams are involved.

A recent roundtable with chairs of audit committees shows some key areas where lessons have been learnt: • Timing of a tender – how this coincides with other factors such as board changes and rotation and retendering requirements throughout the group.

• Which firms to invite to tender – identifying the need for industry and/or geographic knowledge, and understanding investors and regulators views of individual firms.

• Balancing professional services – how to manage conflicting requirements of different professional services and whether to prioritise audit.

• Engagement with investors – the timescales of announcing the audit tender process and other milestones in communicating with shareholders.

• Getting the right audit team – exploring the skills and experience needed from an audit engagement partner.

• Decision-making approaches – whether to give technical challenges, hold meetings with management and assessing the response to the request for proposals.

The FRC’s Melaine McLaren said: “In the UK, and now across Europe, testing the market for audit on a regular basis is required. Feedback from companies that have changed auditors since this requirement was introduced is that there are benefits to be gained from fresh insight.

Even if the current firm is repointed, the experience of the tender process can reinvigorate the audit approach.”

UK audit firms are at the forefront of developing and using data analytic techniques with the potential to improve audit quality.

However, a more structured approach to their deployment could accelerate their effective use, according to findings from a review carried out by the FRC. The review The Use of Data Analytics in the Audit of Financial Statements found that the use of data analytic techniques is not yet widespread.

It goes on to give some good practice examples, including: • Enabling audit staff to build experience and confidence in using a specific audit data analytics tool through a structured roll-out programme.

• Using data analytics for the first time at an interim audit date to improve the prospect of obtaining robust audit evidence at the financial year-end, particularly in a first-year audit.

• Improving the effectiveness and efficiency of the extraction of entity data into audit data analytics tools by using dedicated specialist staff and/or dedicated software.

• Using data analytic techniques to improve oversight and consistency of multiple auditors contributing to group audits where organisations have global accounting systems.

FRS103 amendment FRC has issued a revised edition of FRS 103 Insurance Contracts and the accompanying Implementation Guidance. The revised edition incorporates the amendments arising as a result of Solvency II that were issued in May 2016. In addition, paragraph A4.2A clarifies a legal requirement regarding a reference to the Solvency II Directive in the large and medium-sized companies and groups (accounts and reports) Regulations 2008 (SI 2008/410). BEIS has written to the FRC confirming that there is no requirement to change the accounting basis to one consistent with Solvency II. NQ Magazine April 2017

Conflicts of interest prevail The FRC has announced that it plans to review the governance and culture at audit firms as concerns emerge about the handling of conflicts of interest and firms lacking the ability to deliver quality improvements.

It has a strategic objective to promote justifiable confidence in audit in the UK. Six months ago it became the UK’s Competent Authority for Audit and it claims that “audit quality is not yet consistency sufficiently high”.

A new FRC report says that not all audit firms are demonstrably serving investors’ interest, and this raises real fears of conflicts of interest.

The lack of strong leadership also appears to be holding back an improvement in the quality of audits.

Firms should be adopting the FRC’s Audit Firm Governance Code, which clarifies and emphasises the public interest role of independent non-executives of those firms.

The FRC also points to the ongoing 2016/17 audit quality monitoring cycle where it found there is insufficient auditor scepticism in identified areas of significant risk, such as the assessment of potential impairments and judgements concerning material accounting treatments.

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CORPORATE GOVERNANCE

Creating value: everyone’s a winner

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NQ Magazine April 2017

CORPORATE GOVERNANCE

Neil Stevenson explains how organisations can create value for themselves while also creating value for others

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orporate governance is often considered to be about codes and processes, rather than individual responsibility to contribute to a culture of integrity and responsibility. Of course it is vital that codes are well constructed and processes effectively designed and followed. However, governance has a much wider relevance, which is only increasing as governments seek to encourage long-termism and responsibility for wider stakeholder groups in the corporate world. Governance is currently the subject of review in the UK, and we have seen new and revised governance codes in a range of countries, not least Japan, the Netherlands and South Africa.

While professional accountants are not necessarily directly involved in all aspects of corporate governance, I believe they can play a key role in ensuring its integrity of purpose and implementation. As governance becomes a more prominent feature of reporting, with a spotlight on the integrity of the company, then qualified accountants should ensure they are familiar not just with developments in governance codes but their wider purpose.

There have been a lot of discussions and initiatives on the purpose of the company. In fact, thought leaders such as Frank Bold have been talking about this for many years. The Mazars’ Board Charter ‘best practice’ provides a tool that helps companies to use governance to develop longer-term thinking.

Mazars identify four key factors that influence sustainable success, where they believe effective governance can play an important role: • Boardroom leadership.

• Purpose, value and ethics.

• Fostering innovation.

• Fair treatment of stakeholders.

These factors can never be merely ‘process’ oriented.

And this underlines two things: that governance codes and systems can influence the purpose and performance of companies; and professional accountants can pay a crucial role in ensuring consistency in the implementation of their organisation’s governance and reporting on how it is supporting value creation for successful business outcomes.

We see this connection as central to what we are trying to achieve through integrated reporting – we view corporate reporting as a key pillar of 21st century governance. We want to ensure that reporting is seen as a strategic conversation, promoting integrated thinking in the organisation and inspiring boards to communicate a compelling story of how they create value to their investors (providers of financial capital) and other stakeholders. In the International Framework we pose this as a question: ‘How does the NQ Magazine April 2017

organisation’s governance structure support its ability to create value in the short, medium and long term?’

The evidence that corporate governance codes are being developed to signal a new direction in expected corporate behaviours is strong. A key focus of the recent Netherlands corporate governance code is an explicit emphasis on long termism. In South Africa, a global example has been set through the way in which a holistic view of value creation, taking into account all the resources used by the organisation, is embedded throughout the King IV code.

Furthermore, the review currently under way in the UK will look to update a number of areas of the governance code.

A major aspect of this review is the consideration of how organisations take into account the needs of stakeholders in developing and delivering their products and services. This is at least in part framed on the increasingly quoted s172 of the Companies Act. The concept of value creation at the heart of Integrated Reporting provides a helpful lens in this context: ‘The ability of an organisation to create value for itself is linked to the value it creates for others.’

Your role: some questions to ask As I have argued in previous articles, professional accountants are at the heart of identifying and reporting on value creation. It is a role that will become increasingly important. And you can play an important role in ensuring integrity in the way governance is implemented throughout your organisation. Here are some questions to help you think about where you can add personal value: • How is your organisation taking account of the needs of stakeholders?

• Are the stakeholders well defined and understood including how the organisation engages with them?

• Is value expressed in financial terms alone or is this seen as part of a wider view of value?

• Is creating value for others seen to be essential to creating value for ourselves?

• Is this understood and championed throughout the organisation.

• Are these areas being reported consistently?

Some big discussions on governance today are actually about the purpose of the organisation. By ensuring purpose and value are well understood throughout the organisation you can contribute personal added value and strengthen NQ good corporate governance.

l Neil Stevenson, Managing Director, Global Implementation, International Integrated Reporting Council 21

BUSINESS NEWS

Cracking down on the cartels The Competition and Markets Authority is targeting illegal cartels and wants your help!

Andrea Coscelli

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histleblowers are being offered up to £100,000, as the Competition and Markets Authority (CMA) launches its first-ever advertising campaign to crack down on cartels.

The CMA is targeting the businesses that cheat their customers by agreeing not to compete with each other in order to keep their prices high. The practice, says the CMA, stops ordinary people and other businesses from getting a fair deal as well as stifling competition.

The CMA’s campaign, Cracking down on Cartels, will, it hopes, encourage people who have witnessed illegal activity to report it by offering a reward of up to £100,000, as well as promising them anonymity.

Meanwhile, under the CMA’s leniency scheme, firms can avoid penalties of up to 10% of their total turnover and prison sentences of up to five years for staff if they are the first to admit to being part of a cartel.

Andrea Coscelli, Acting Chief Executive, said: “Cartels are a form of stealing that cheat ordinary people as well as other businesses by undermining competition, and we are committed to

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tackling them wherever we find them.

Cartels are carried out in secret to make you think you are getting a fair deal, even when you are being conspired against to keep prices high.”

He added: “Cartels are both harmful and illegal, and the consequences of breaking the law are extremely serious. That is why we are launching this campaign – to help people understand what cartel activity looks like and how to report it so we can take action.”

CMA research found that while most businesses have a shared ethical sense that conduct such as pricefixing is unfair or wrong, less than a quarter of businesses said they knew competition law well and that: • Only 16% knew that informants could get a reward for reporting a suspected cartel, and • Only 15% knew that the CMA operates a leniency programme for businesses and individuals that confess their involvement in a cartel and cooperate with the CMA. Cartels have been uncovered in a range of industries and the campaign builds on recent CMA cartel cases.

These have included: • Fining two furniture parts-makers a total of £2.8 million. They agreed not to compete on price and decided who would supply which customer.

The case followed a tip-off from an informant.

• Fining four estate agents a total of £370,000 for price-fixing, after information was received as a result of an earlier CMA campaign following a previous case in the estate agency sector.

• Disqualifying the managing director of an online poster supplier for five years after his company was found to have been part of an online pricefixing cartel, which followed an application for leniency by the other company involved.

So how do you report a cartel?

Well, you can email cartelhotline@ cma.gsi.gov.uk or you can ring 0800 085 1664 or 020 3738 76888. There is, however, a different number to confess your involvement in a cartel and apply for leniency, or confidential guidance. For this you need to call NQ 0203 738 6833. ● The CMA is the UK’s

primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. For CMA updates, follow them on Twitter @CMAgovuk, Flickr, LinkedIn and Facebook.

NQ Magazine April 2017

VAT

Colour VAT HMRC sets out the VAT treatment of colouring and dot-to-dot books – is it simply child’s play?

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MRC has issued a VAT brief on the scope of the zero rate for colouring and dot-to-dot books, effective from 1 April 2017.

It explained that the past two years or so has seen a growth of books labelled or described as ‘adult colouring books’ and ‘adult dot-to-dot books’. Many suppliers have zero-rated these books in the belief they are a general book (like a paperback or hardback novel), placing reliance on Item 1 of Group 3 to Schedule 8 of the VAT Act 1994 – as you do!

However, the leading case on what is a book is set out in ‘Customs and Excise Commissioners v Colour Offset Lid [1995]’. In this case, the High Court found that a book is produced on paper or cards, consists of a number of leaves and is bound in a stiffer cover. In addition, perhaps more importantly, the book must be designed to be “read or looked at”.

The briefing states that while the adult colouring and dot-to-dot books satisfy most of the conditions they are not designed to be read or looked at. In fact, they are designed to be ‘completed’. Therefore, while these books are not zero-rated under Item 1 of Group 3, they could be zero-rated under Item 3 of Group 3 as ‘children’s picture and painting books’ if changes are made.

HMRC is clarifying its policy concerning the VAT treatment of these types of books, particularly those sold after 1 April 2017.

Coluring books that are suitable and held out for sale to children under the age of 18 years are zero-rated. Most of NQ Magazine April 2017

the content of the books currently sold as ‘adult colouring books’, or as books ‘suitable for grown ups’, are also suitable for children under the age of 18 years. However, the way they are marketed and held out for sale, in HMRC’s view, prevents them from being eligible for the zero rate.

HMRC said it accepts that colouring books and dot-to-dot are VAT zero-rated unless one of the following applies. The books are: • Marked as suitable for adults or grown-ups.

• Held out for sale in retail shops together with other adult books that are unsuitable for children or are not appropriately marked as suitable for children when for sale on a website.

• Contain images reflecting profanity, pornography, violence and illegal acts.

If the book meets any of the three conditions then the standard rate applies.

HMRC has said that it does not intend to seek recovery of any tax on colouring or dot-to-dot books sold prior to 1 April 2017 where the content is suitable for children. This is irrespective of how the book was marketed or held out for sale at the time.

However, books that contain images reflecting profanity, pornography, violence and illegal acts (as determined in VAT Notice 701/10: zero-rating of books and other forms of printed matter) will not be treated as zero-rated. The content of such books, explains the brief, can never be seen as NQ suitable for children.

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